bail out

We have another Eurozone bail out. The Euro Summit has released a 15 page statement (pdf) overviewing the agreement. The plan was ratified by all 17 Member States of the euro area.

First, there is a haircut on Greek debt, which while pretending to be voluntary, the volunteer or else threat behind it would allow a complete Greek default, where bond holders would get nothing and banks would probably be ruined.

We invite Greece, private investors and all parties concerned to develop a voluntary bond exchange with a nominal discount of 50% on notional Greek debt held by private investors. The Euro zone Member States would contribute to the PSI package up to 30 bn euro.

The plan is to reduce Greek debt to 120% of GDP by 2020 and is about €100 billion reduction with yet another €100 billion in additional aid.

Greece gets a new €109 billion bail out with €37 billion coming from the private sector. Al-Jazeera does a good job in the below video report overviewing the bail out terms. One of the goals was to stop contagion.

Of course the help will have a catch, that infamous, vague term, austerity. So far this has been an attack on workers, wages and social safety nets.

The U.K., which has cuts social safety nets, workers will contribute £4bn to the Portugal bail out....in order to cut social safety nets, workers and wages.

The Treasury said the UK was not planning to offer bilateral assistance to Portugal in the way that it did to Ireland.

But it confirmed that Britain could be required to provide a loan of up to about £4.4bn – 13.6% of the €37.5bn remaining in the EU "disasters fund" after it was drawn upon by Ireland – as well as 4.5% of any IMF loan.

Oh my. There is a new report claiming the 2008 Financial crisis was a concerted effort by Terrorists. I kid you not. The Washington Times:

Evidence outlined in a Pentagon contractor report suggests that financial subversion carried out by unknown parties, such as terrorists or hostile nations, contributed to the 2008 economic crash by covertly using vulnerabilities in the U.S. financial system.

The unclassified 2009 report “Economic Warfare: Risks and Responses” by financial analyst Kevin D. Freeman, a copy of which was obtained by The Washington Times, states that “a three-phased attack was planned and is in the process against the United States economy.”

While economic analysts and a final report from the federal government's Financial Crisis Inquiry Commission blame the crash on such economic factors as high-risk mortgage lending practices and poor federal regulation and supervision, the Pentagon contractor adds a new element: “outside forces,” a factor the commission did not examine.

“There is sufficient justification to question whether outside forces triggered, capitalized upon or magnified the economic difficulties of 2008,” the report says, explaining that those domestic economic factors would have caused a “normal downturn” but not the “near collapse” of the global economic system that took place.

The Federal Reserve has a dissident in their midst who is about to get FOMC voting rights. Philadelphia Federal Reserve President Charles I. Plosser gave one wallop of a speech making it very clear he disagrees with the Federal Reserve bailing out the Banksters and the Housing Market. He also disagrees with intervention in assets as well as giving the illusion the Federal Reserve can really do something about unemployment. From the speech:

I have suggested that the System Open Market Account (SOMA) portfolio, which is used to implement monetary policy in the U.S., be restricted to short-term U.S. government securities. Before the financial crisis, U.S. Treasury securities constituted 91 percent of the Fed’s balance-sheet assets. Given that the Fed now holds some $1.1 trillion in agency mortgage-backed securities (MBS) and agency debt securities intended to support the housing sector, that number is 42 percent today. The sheer magnitude of the mortgage-related securities demonstrates the degree to which monetary policy has engaged in supporting a particular sector of the economy through its allocation of credit. It also points to the potential challenges the Fed faces as we remove our direct support of the housing sector.

The Federal Reserve Board on Monday announced preliminary unaudited results indicating that the Reserve Banks provided for payments of approximately $78.4 billion of their estimated 2010 net income of $80.9 billion to the U.S. Treasury. This represents a $31.0 billion increase in payments to the U.S. Treasury over 2009 ($47.4 billion of $53.4 billion of net income). The increase was due primarily to increased interest income earned on securities holdings during 2010.

On the other hand, what they made the money on are securities from Freddie Mac and Fannie Mae, or GSEs, U.S. Treasuries and those infamous mortgage backed securities or toxic assets them purchased.

The headlines are all a buzz over this Wall Street Journal article, declaring bailed out banks may fail. These 98 banks have received $4.2 billion in TARP funds, a token amount in comparison to the Banksters.

In Q2 2010, the number of TARP recipient banks who would fail anyway was 86. That said, every Friday at business close we get more bank failures. The tally for 2010 alone being 157.

Calculated Risk runs the unofficial problem bank list, currently outlining 919 problem banks. Most of these of the list did not get TARP funds.

There are also reports of the FDIC selling failed banks assets to TARP recipient banks, for pennies on the dollar and holds large amounts of seized failed bank assets.

The FDIC closed on the sale of $279 million of assets from nine failed bank receiverships. The winning bidder of the asset pool was Cache Valley Bank, Logan, Utah, with a purchase price of 22.2% of the unpaid principal balance of $279 million. The failed bank assets will be placed into a newly formed limited liability company (LLC) with the FDIC retaining a 60% stake and the balance owned by Cache Valley Bank.

Despite deep differences over how to contain their continuing debt crisis, European Union leaders agreed Thursday to create a permanent support fund for the euro after 2013 — something they hope will be a first step to calming the markets.

Leaders did agree, however, on the creation of a bailout mechanism that would operate after 2013, when the mandate of the current fund expires.

Yet even here, vital questions on the size and scope of the fund were left until the spring.

The new body, known as the European Stability Mechanism, will take over in 2013 from the existing 440 billion euro, or $582 billion, bailout fund.

Bondholders could be asked to shoulder some losses in future debt crises on a case-by-case basis.

To set up this facility, the European Union will have to revise its governing treaty, but it plans to do so in such as way as to avoid requiring referendums in any of the 27 member countries, all of which will have to ratify the revision.

Changes to the Lisbon Treaty were demanded by Germany to enable a temporary, trillion-dollar rescue fund to be turned into a permanent umbrella that will allow governments who fall on hard times to seek and obtain help from currency partners.

As financial conditions have improved, the need for the broad-based facilities has dissipated, and most were closed earlier this year. The Federal Reserve followed sound risk-management practices in administering all of these programs, incurred no credit losses on programs that have been wound down, and expects to incur no credit losses on the few remaining programs. These facilities were open to participants that met clearly outlined eligibility criteria; participation in them reflected the severe market disruptions during the financial crisis and generally did not reflect participants' financial weakness.

The bailout would be in the tens of billions of euros, he said, adding that the final figure was subject to negotiations. Analysts and politicians have suggested that the size of the package may well approach €80 billion, or $109 billion.

Perhaps €15 billion would be set aside in a fund to support the country’s banks, which have been hemorrhaging deposits. An additional €60 billion or so would be allocated to Ireland itself so as to give it the flexibility of staying out of the bond markets.

Mr. Cowen has said Ireland is already putting an adequate budget-cutting plan in place, but given the size of the bailout being discussed, it would be surprising if E.U. and I.M.F. officials did not demand more cuts, accompanied by tax increases.

“There will be a lot of pain for the taxpayer and a lot of people will lose their jobs,” said Michael Noonan, the chief economic spokesman for Fine Gael, the main opposition party.